COOL: Potential Economic Implications For the Canadian and US Pork Industries Larry Martin

Presentation Outline COOL Project I: Impacts in Canada – Manitoba Pork Research COOL Project II: Impacts in the US – Prairie Producers, Ontario, and CPC Research – Authored by GMC and Virginia Tech

COOL I: Impacts in Canada

Most Important Point The US represents 35-40% of the market for Cdn hogs/pork COOL objective is to reduce or eliminate imports

Background It will cost more for US packers to handle Cdn hogs – Trace back to farm of birth – Logistics after slaughter – Many are not going to take Cdn hogs – Undecided Cdn pork is likely okay – Not a given

US $/Head Procuring Canadian Hogs or Pork Not Procuring Canadian Hogs or Pork Difference in Costs for Canadian or Not Producer 110 Packer Retailer Total COL Cost Current Thinking

If Cdn hogs cost more to handle, they will not be purchased, or they will be discounted by the extra costs.

How Do We Get At Impacts? Assume they don’t get exported Ave Manitoba farm size No price effect

COL Implications: Negative At risk: – 450 farms – $350 million farm income – Six feed mills – Market for 250,000 acres Or $750 million and up to 3,000 farms Manitoba is directly vulnerable

COL Implications Neutral/Positive: – US system is not rigorous or systems not costly. – US packers figure out how to handle Cdn hogs without difficulty. – Business as usual.

COL Implications Positive: – US burdened with costs – Cdn pork is successful Cda needs finishing and packing capacity Value added, jobs, exports….

Capacity Expansion Finishing space (1 million) Packing (58,000/week) Capacity expansion has precedent

COOL II: US Impacts

Premise COOL’s purpose is to impede trade COOL may achieve that purpose What will be the results if the US is short 6 million head?

1 st : Weaner/Feeder Imports

Why do weaners/feeders go South? Sound economic reasons High quality Structural evolution in hog belt They have strong demand and we have supply

W/F Importers Variety of methods Final user is independent farmer/finisher – Mostly in Iowa – Average producer

What if 3.7 million are not available? Jeopardize the livelihoods of 1,000+ farmers Farm income of $450m Economic spin-offs (value added)

The hogs will eventually be produced in the US, by…. Few integrators replace many farmers Increased health and disease risk

2 nd : Market Hog/Packer Impacts

Why do Market Hogs Go South? Sound economic reasons – Price – Capacity (here and there)

What will happen if 6M hogs don’t go south Eliminate US packing capacity – 3-4 plants Increased Cdn pork imports – 1 plant Lost jobs and $4b in economic activity Increased manure production – 2.1 million tons once lost production is replaced

What about price impact? US production will increase Cdn production will decrease, but not by as much as US increases Net increase of 4 million head post-COOL – 6mil cdn hogs produced in us – Cda reduce production 2 mil Hog prices will be 30% lower than they would have been without COOL.

Summary US Impact Lower prices Fewer farmers Bigger integrator share Lost jobs, plants and economic activity Security risk